from the redeemable? dept

A month after his partner in crime Paul Hansmeier was sentenced to 14 years in prison, with scathing commentary from the judge in the case about Hansmeier and his copyright trolling scheme, John Steele has been sentenced to five years in prison in a sentencing that appeared to go quite differently than Hansmeier's. In front of the very same judge, a very different story was told. At the Hansmeier hearing, the judge said this:

"It is almost incalculable how much your abuse of trust has harmed the administration of justice," [Judge Joan] Ericksen said during the sentencing hearing in U.S. District Court in Minneapolis.

At the Steele hearing, after federal prosecutors apparently heaped praise upon Steele for confessing, and helping build the case against Hansmeier, Erickson gave Steele a chance to speak, at which point he at least put on a credible performance of contrition. He explained how he had met Hansmeier, how Paul had concocted the scheme and he joined in -- including lying to federal judges about what they were up to. From the Star Tribune's Dan Browning's excellent reporting:

First, he said, he enrolled at the University of Minnesota Law School at the age of 37 without any sense of mission other than making money. It was there that he met and befriended Hansmeier, which led to a second poor decision in April 2010.

“I’ll never forget that day,” Steele said, choking up. “I received a call from Paul Hansmeier about an idea he had about seeding pornography content online.”

The third bad decision came when federal judges around the country began questioning Hansmeier’s and Steele’s methods of filing hundreds of lawsuits to identify the owners of computers that were used to download pornography so that they could pressure them to settle to avoid public humiliation.

Steele said he could have told the judges the truth but opted to blame others and hide behind offshore companies that had technical ownership of the copyrights on the movies.

This is... a very different version of Steele. I remember the long interview he gave with Kashmir Hill where he boasted of the success he was having and mocked the idea that his copyright trolling, by threatening to expose people's porn habits, was unethical by saying:

“People don’t like to get caught doing anything wrong,” he says. “They should be embarrassed about the stealing.”

Interesting quote. Or then there's the interview Steele did with Joe Mullin in which he did his usual bluster after a judge (Otis Wright) had first called him on his bullshit trolling scam. At the time, Steele seemed overly boastful of his ability to succeed:

It's not our job to—there was no evidence against us! I think everyone, even the people that dislike anti-piracy litigation, would agree that I don't have to answer questions if I don't want to. That's my right. The fact that people take the Fifth Amendment, against compelled testimony, is not allowed to be a negative inference.

I have no involvement in this case. I've never made a misrepresentation [to the court], either me or Paul Hansmeier.

This judge is completely biased against our type of litigation. Anyone who's researched this judge knows it. There have been some very harsh rulings by this judge against intellectual property plaintiffs. I think there were some errors made, and that's why we have appellate courts.

I think the judge knows we're going to appeal. He wrote that the sanctions were designed to cost just less than [an effective appeal]. Look, you may hate me and the litigation that's gone on in the past, but most people have to be a little nervous when a judge puts out a number and says that.

In that interview, he insisted that he had "no involvement" with the shell companies AF Holdings and Ingenuity 13. Of course, part of the federal charges, which Steele admitted to in great detail in his guilty plea, was that he and Hansmeier set up AF Holdings and Ingenuity 13. In his guilty plea documents:

In or about 2011, defendants convinced R.R., the
owner of Heartbreaker Productions, to transfer the copyrights to Sexual Obsession and
Popular Demand to AF Holdings. In order to disguise their control over AF Holdings,
defendants used the name of an acquaintance of STEELE--whose initials are A.C.--on
the copyright transfer agreement to purportedly sign on behalf of AF Holdings.
Furthermore, defendants represented and caused to be represented to multiple courts that
AF Holdings was owned by a trust named "Salt Marsh" whose manager and sole
beneficiary was M.L., a paralegal employed by STEELE and Hansmeier. In fact, and as
defendants knew, M.L. was nothing more than a figurehead who agreed to pose as the
owner of AF Holdings in order to help STEELE and Hansmeier obscure their ownership and control over the company.

For long time Prenda watchers, you may recognize those initials. A.C. being Alan Cooper, a former caretaker for a cabin John Steele owned, whose name Steele forged on the various documents. Cooper, having no idea what was going on, later sued over the forged documents. M.L., of course is Mark Lutz, the "paralegal" who Steele and Hansmeier falsely tried to present as the real mastermind behind everything.

This week, in court, Steele told a very different story.

He said he went back to building and rehabbing homes and began studying stoicism. He said for the past couple of years he has been working for one of his sisters in Phoenix.

“I’m trying to live a life of virtue,” Steele said. “All I can control is obviously the thoughts and actions now and in the future. I think it’s important that I stand here today and look at you and apologize.”

The Assistant US Attorney in the case heaped praise upon Steele for his cooperation, and contrasted Steele to Hansmeier in how they dealt with the charges -- including noting how much Steele's assistance helped in getting Hansmeier to plead guilty as well (though Hansmeier's was "conditional" based on some of his legal attempts to dump the case).

Judge Ericksen still noted how abusive and serious the trolling operation was, but also noted that it appeared that Steele recognized how serious this whole thing was:

“You abused the court system, as you say, for your personal ends,” she said, adding that the courts “are not a tool in the box for anybody’s hustle.”

Even so, Ericksen agreed with prosecutors that given Steele’s cooperation and efforts to turn his life around, five years in prison was “eminently fair.” ....

“I condemn the actions that you took in committing this crime. I congratulate you, however, on the actions you took” in responding to the charges, Ericksen said.

The Judge had already order Hansmeier to pay back $1.5 million, and now put that on Steele too, making the two of them "jointly and severally liable" -- effectively meaning that the two of them together need to figure out how to come up with that cash to pay back.

Given how vocal and how adamant (and, frankly, how sleazy and confident he was that he could talk his way out of any mess) Steele was over the years, consider me not totally convinced that he's really had a change of heart. It would be great if that were true, but it's going to take more than a single performance in court to convince most of us. Either way, five years in prison is still a significant prison sentence. And, now, it appears we can finally close the books on Prenda.

from the not-so-clever-Hans-heads-for-the-federal-glue-factory dept

Cue the Ron Paul "It's Happening!!!!" gif. The wheels of justice have been grinding away for years now, but they've finally generated several years for longtime copyright troll/supervillain Paul Hansmeier. After making a career out of extorting settlements from alleged porn-watching infringers, extorting settlements from small businesses with bogus ADA complaints, attempting to hide his wealth from his creditors (some of which were owed money for sanctions imposed in copyright trolling cases), and otherwise putting on a one-man show entitled "Why We Hate Lawyers," Hansmeier is facing the possibility of spending the next decade in prison.

The sentencing recommendation [PDF] prepared by the prosecutors has nothing good to say about Hansmeier. In fact, the prosecutors make it clear they'd have given him even more than the 12+ years they've recommended. (h/t Virgil Abt)

Here are the numbers:

As reflected in the report, the appropriate guidelines range for Paul Hansmeier is 135 to 168 months in prison.

And here's the reasoning for the lengthy sentence:

Paul Hansmeier was the driving force behind this massive scheme. It was Hansmeier who came up with the idea to construct a copyright settlement mill focused on pornographic films. It was Hansmeier who directed his brother to upload clients’ movies onto file-sharing websites to lure downloaders. It was Hansmeier who drafted nearly all of the legal pleadings used to deceive judges. It was Hansmeier who invented phantom hacking allegations. And it was Hansmeier who lied to judges, dissembled in depositions, and coerced others to conceal the truth.

The government says John Steele was basically the muscle -- an intimidating figure who also handled the bookwork for the scheme. But it was Hansmeier who did the dirtiest of the dirty work. And as such, he should be dealt with more harshly. And this is hardly the end of the government's summary of Hansmeiers' dirty work. The filing continues in this fashion for several pages -- a fitting tribute to Hansmeiers' scamsmanship.

The headings alone indicate the depth of Hansmeiers' grift.

Hansmeier repeatedly deceived courts

Hansmeier and Steele owned and controlled the plaintiffs

Hansmeier invented allegations of hacking

Hansmeier protected himself by using proxies

The details interspersed between these headings are devastating in their description of Hansmeier and his long-running fraud.

Hansmeier concealed from the courts that he filmed and produced much of the pornography in this case himself, not for commercial distribution, but for the sole purpose of using the resulting pornographic movies as bait.

[...]

Hansmeier compounded his egregiously disgraceful misuse of Judge Bransford’s subpoena authority by lying directly to her face in open court…

[...]

Hansmeier hid the fact that he and his codefendant, John Steele, were the attorneys responsible for filing every fraudulent copyright infringement lawsuit in this case. Hansmeier and Steele recruited an alcoholic and now-deceased Chicago attorney named Paul Duffy to serve as the putative owner of “Prenda Law,” the firm that represented AF Holdings, Ingenuity 13, and the other sham plaintiffs in the various copyright cases.

[...]

[W]hen courts around the country sought to hold Hansmeier responsible for the fraud and damages he had wrought, Hansmeier resorted to perjury and suborning perjury to escape blame and retain the proceeds of the scheme. Hansmeier and Steele swore out false declarations, gave false testimony in depositions and at court hearings, and caused Lutz to do the same…

[...]

Even after Judge Wright’s widely-read order sanctioning Hansmeier, Hansmeier continued to hide the money he gained through the fraudulent scheme. Hansmeier transferred money into his new law firm, Alpha Law, into accounts controlled by his wife, Padraigin Browne, and a sham trust called “Monyet,” and then filed a fraudulent bankruptcy case concealing the fact that Hansmeier retained control over a substantial amount of the proceeds of his fraud case.

The whole recommendation is a depressing read simply for the fact this scam went unimpeded for so long. The government wraps up this ugly narrative with its recommended sentence, but only after offering this last appraisal of Paul Hansmeier.

In summary, Hansmeier was greedy, arrogant, devious, mendacious, and consistently positioned other people to be damaged by his conduct, even as he enjoyed the proceeds of the scheme he orchestrated. Even now, Hansmeier continues to accept responsibility only in conditional terms, hoping to convince the appeals court that his shocking abuse of his position of trust as a Minnesota attorney, and an officer of its courts, was somehow legal.

The government says its final call is 150 months, but the footnote attached indicates the government would have handed out so much more if it had not already agreed not to.

In the plea agreement, the government agreed not to recommend a sentence above 150 months.

Twelve years is a lot of time. But Hansmeier appears to have earned every day of it.

If you don't recall, Hansmeier and Steele started out as garden variety copyright trolls, suing tons of people and shaking them down for money, but they kept expanding the scam, to the point that they were setting up bogus honeypots with content they themselves uploaded to get IP addresses to shake down (with hilariously dumb attempts to cover up that it was them). They also set up fake shell companies as their own "clients" which didn't go over well in court. That's not even getting to the way that Steele and Hansmeier were clearly the beneficiaries of these shakedowns, or the fact that they tried to hide the money. And do we even mention the outright lying in court?

One of the most incredible things in watching the whole Prenda saga over the years was just how much Steele and Hansmeier seemed absolutely 100% convinced that they could talk their way out of everything. No matter how bad it was getting, they would scream to the heavens about how everyone was lying about them and that eventually they'd be shown to be innocent. Yet now they've both pleaded guilty. Hansmeier's plea agreement has him pleading guilty to mail fraud and wire fraud, along with conspiracy to commit money laundering. The "deal" is that prosecutors won't charge him with even more crimes that they've since uncovered "including conduct associated with the defendant's bankruptcy proceedings." The agreement lays out much of the scam in pretty clear terms (the P.H. in the agreement appears to be Paul's brother Peter Hansmeier who there are differing opinions about his level of involvement in the scam, P.D. is obviously Paul Duffy, who was another bumbling part of the scam, and who died a few years back of "chronic ethanolism" as all of this was unraveling):

Defendants Uploaded Clients' Movies to File-Sharing Websites

Beginning no later than in or about April 2011, HANSMEIER and Steele caused
PH. to upload their clients' pornographic movies to BitTorrent file-sharing websites,
including a website named the Pirate Bay in order to entice people to download the movies
and make it easier to catch those who attempted to obtain the movies. As defendants
knew, the BitTorrent websites to which they uploaded their clients' movies were
specifically designed to aid copyright infringement by allowing users to share files,
including movies, without paying any fees to the copyright holders.

Defendants Obscured Their Involvement in the Lawsuits

In or about November 2011, in order to distance themselves from the copyright
infringement lawsuits and any potential fallout, defendants caused Prenda Law to be
created. Although P.D.--an attorney located in Chicago--nominally owned Prenda Law,
HANSMEIER and Steele exerted defacto control over Prenda Law, including the primary
direction of its employees and dispensation of its finances.

Additionally, beginning in or about 2011, defendants created various entities they
surreptitiously controlled, including AF Holdings LLC, Ingenuity 13 LLC, Guava LLC,
and LW Systems LLC. The defendants used these entities as plaintiffs in copyright
infringement lawsuits the defendants filed against individuals who had downloaded movies
the defendants had uploaded to BitTorrent websites.

Defendants Filmed Their Own Pornographic Movies
and Uploaded Them to File-Sharing Websites

Beginning no later than in or about May 2012, defendants participated in filming
pornographic movies. On at least three separate occasions in Chicago, Miami, and Las
Vegas, HANSMEIER and Steele--at times assisted by P.D., M.L., and P.H.--contracted
with adult film actresses and produced multiple short pornographic films. HANSMEIER
and Steele then caused Ingenuity 13 to obtain copyrights to the films, which bore names
such as "Five Fan Favorites" and "A Peek Behind the Scenes at the Show." Shortly after
filming the movies, HANSMEIER instructed P.H. to upload the movies to file-sharing
websitessuch as the Pirate Bay in order to catch, and filed lawsuits against, people who
attempted to download the movies.

Defendants Concealed Actions from Courts

After uploading their clients' and their own pornographic movies to BitTorrent
who purportedly downloaded the movies did so without "authorization" or "consent" from
the copyright holder or its agents and that their client had suffered "damages." After filing
the initial complaint in these lawsuits, defendants then filed ex parte motions seeking to
obtain early discovery regarding the identities of the subscribers associated with the IP
Addresses used to download the movies, and therein represented to the court that the
unnamed defendants downloaded the movies without authorization. In each of these
lawsuits and the accompanying ex parte motions for early discovery, HANSMEIER and
Steele concealed from the court that they: (a) uploaded their clients' movies to BitTorrent
websites, (b) filmed their own pornographic movies in order to upload them to BitTorrent
websites, and (c) owned and controlled the plaintiffs and thus had a significant personal
stake in the litigation. HANSMEIER and Steele knew that these facts were material to the
courts' decisions whether to permit early discovery.

The courts, relying on the defendants' lawsuits and motions, granted early discovery
and thereby authorized the defendants to subpoena internet service providers for subscriber
information associated with the IP Addresses set forth in the motions and/or civil
complaints. After obtaining the subscriber information associated with the IP Addresses,
the defendants sent letters and made phone calls to the subscribers seeking settlement
payments in exchange for dismissing the lawsuit against those subscribers.

Then there's the discussion about the CFAA related scam that Prenda tried to pull:

Hacking Allegations

Beginning in or about October 2012, HANSMEIER and Steele caused lawsuits to
be filed, generally on behalf of Guava LLC, falsely alleging that certain named defendants
had "hacked" into their client's computer systems. In fact, and as the defendants knew,
the defendants named in these lawsuits had been caught downloading one of HANSMEIER
and Steele's clients' movies from a file-sharing website. These "defendants" had agreed
that, in exchange for HANSMEIER and Steele waiving a settlement payment, the
defendant would be sued and permit HANSMEIER and Steele to seek discovery about
his/her alleged co-conspirators. HANSMEIER and Steele brought several lawsuits falsely
alleging that these defendants had participated in hacking Guava's computers in order to
attempt to obtain authority from the court to issue subpoenas to intemet service providers.

There's much more in there as well.

For what it's worth, kudos should be directed to the person behind the Fight Copyright Trolls website, who really was the first to not only call out Prenda's bad behavior, but who figured out many of the details of the scam way before anyone else did. I'll admit that some of that site's early reporting seemed so outlandish that I was initially skeptical that it could possibly be accurate. But as more and more evidence came to light, basically everything that FCT initially suggested turned out to be incredibly accurate. Also, many kudos to the various lawyers who helped bring Prenda down in court in a variety of different cases, which helped highlight the details of the scam. I know I'm forgetting some, but Morgan Pietz, Nick Ranallo, Dan Booth, Jason Sweet and Erin Russell put in quite a lot of effort in unraveling Prenda in court.

from the welcome-to-the-big-leagues dept

Remember all the bravado behind John Steele and his copyright porn trolling? I've noted in the past that Steele reminded me of some guys I knew in college who believed that they were so smart that they could do whatever they wanted, and talk their way out later if they got into trouble. And, for many years, it seemed that Steele was fairly successful in doing exactly that. Remember all his big talk right after Judge Otis Wright referred Steele and his partners to law enforcement over his copyright trolling efforts? At the time, he yelled and screamed about how it was unfair and unprecedented, and insisted loudly that he would prevail.

I—and others involved—have been in front of hundreds of judges. This is the first judge that has ever sanctioned anybody involved with Steele Hansmeier, Prenda Law, or whatever.

He also continued to insist that he barely had any role at all in the grand scheme, involving shell companies, forged documents, faked honeypots and more:

I work part-time with Livewire Holdings, one of the entities that Lutz owns. My role is on the business side. I acquire other adult content companies and deal with expanding the holding company. The main goal is to handle a lot of content and websites and to be involved in the adult space. For that, I'm paid a flat fee. I won't say how much, but it's a modest flat sum.

Anyway, fast forward a few years, and as you'll recall, Steele and his partner Paul Hansmeier were arrested late last year, and on Monday Steele pled guilty in court in a deal where he basically admits to everything that many of us covering the Prenda saga had suggested he was doing over the years. It's all in there. The summary (though even more is in the full document):

Beginning in about 2011 and continuing until about 2014, defendant John L. STEELE and co-defendant Paul Hansmeier executed a scheme to fraudulently obtain millions of dollars in copyright lawsuit settlements by deceiving state and federal courts throughout the country. The defendants--both lawyers--used sham entities they controlled to obtain copyrights to pornographic movies, some of which they filmed themselves. The defendants then uploaded the movies to file-sharing websites hoping to lure people into downloading their movies. When STEELE and Hansmeier ensnared someone in their trap, they filed false and deceptive copyright infringement lawsuits that concealed their role in distributing the movies, as well as their significant personal stake in the outcome of the litigation. After fraudulently inducing courts into giving them the power to subpoena internet service providers and thereby identify the subscriber who controlled the IP Address used to download the movie, the defendants used extortionate tactics to garner quick settlements from individuals who were unaware of the defendants' role in uploading the movie, and often were either too embarrassed or could not afford to defend themselves. When these individuals did fight back, the defendants dismissed the lawsuits rather than risk their scheme being unearthed. After courts began limiting the number of people STEELE and Hansmeier could sue in one lawsuit, they changed tactics and began filing lawsuits falsely alleging that computer systems belonging to certain of their sham clients had been "hacked" and recruited ruse defendants to fraudulently obtain authority from courts to subpoena internet service providers. Furthermore, when courts began questioning the defendants' tactics, the defendants repeatedly lied and caused others to lie to courts in order to conceal the true nature of the scheme. The defendants also caused interstate mailings and wire transmissions to be conducted in furtherance of the scheme to defraud.

All that and more are in the document that Steele has now signed, confessing to it all. Now, as I've discussed in the past, it does pay to be at least somewhat careful around believing what's in plea bargains, as the pressure put on people who've been indicted to sign such an agreement is massive -- usually involving an agreement to agree to less time in prison in exchange for an easy plea. However, as Ken "Popehat" White notes in his thorough write up of the case, in this case, it doesn't appear that the "plea bargain" is much of a bargain at all for Steele. He isn't agreeing to much of a "lesser" charge to get off easy. He's agreeing to all the key things, and then hoping maybe that the judge will go on easy on him later, because he's also agreed to roll over on Hansmeier:

Steele and the government have stipulated to factors yielding an anticipated guideline range of 97-121 months of imprisonment. Yes, up to ten years in federal prison. This is not a highly favorable plea agreement — Steele isn't getting any killer deal (yet) for pleading guilty. The feds made him plead to both mail fraud and money laundering — a "good deal" would drop the money laundering. In addition, the feds made Steele agree to just about every Guideline enhancement I can think of, rather than leaving those enhancements open to argue. Steele has truly hurled himself on the sword here....

[....]

I've seen a lot of plea agreements in a lot of federal cases, and I don't recall another one that so clearly conveyed the defendant utterly surrendering and accepting everything the government demanded, all in hopes of talking his sentence down later. Trusting your ability to talk your way out of it later is typical of a sociopath and a con man, of course.

Ken, of course, has a bunch of more insightful thoughts on this as well, so go over and read it if you haven't already.

Of course, now this means that Hansmeier is in even deeper shit than Steele. The feds have no reason to cut a deal with him to roll over on Steele, and Steele has now agreed to testify against Hansmeier. They may still cut a deal, but it certainly appears that the final chapter concerning Prenda isn't ending well for either Steele or Hansmeier. Of course, in the meantime, after my last post, people noted that Hansmeier's wife has picked up on Hansmeier's "encore" act of doing ADA trolling -- a very similar legal scheme in which they find some sort of minor technical violation of the Americans with Disabilities Act, and then try to shake down small businesses into paying up. You'd think that maybe after seeing how the copyright trolling has ended up for her husband, Hansmeier's wife might reconsider doubling down on the family business. Remember, last we'd heard, the FBI was also looking into Hansmeier's ADA trolling activities. So we may not be able to retire the "Prenda" tag just yet...

from the shit-gets-real dept

For many, many, many years, we've been covering the saga of Prenda Law -- a legal operation set up to file tons of shakedown copyright infringement lawsuits in an effort to get as many people as possible to just pay up and settle. The scam got deeper and deeper the more you looked, including forged signatures, clear evidence that the main actors behind Prenda -- John Steele and Paul Hansmeier -- were uploading their own works as a honeypot, while pretending to represent clients that they themselves owned through various shell companies -- which they denied owning. It went on and on and on. And on and on and on. Things really went sideways almost four years ago when Judge Otis Wright in California was the first judge to put much of this together, and called all of them to court, where everyone pleaded the fifth (yes, lawyers were pleading the fifth in a case they themselves brought). In response, Judge Wright referrred the case to law enforcement, leading many people to ask over the past four years how it was these guys weren't in jail (and, in fact, they continued to file lawsuits, reprising the same scheme but with ADA shakedowns.

Court after court after court has slammed Prenda, and ordered Hansmeier and Steele (partner 3, Paul Duffy, died in the middle of all of this) to pay up lots of money. Of course, in response to that, there were further accusations of illegally hiding money, bogus trusts, a questionable bankruptcy claim and more. And, yet, they still were not in jail. Oh, and we didn't even mention the various ethics investigations that recently suspended Hansmeier's license.

Ken "Popehat" White -- who as a former Assistant US Attorney and current criminal lawyer -- has kept saying that the wheels of justice turn slowly, but they do turn. Back in May, White noted that it appeared that ofifcials were getting mighty close to filing charges against Hansmeier and Steele, based on some evidence he had seen, suggesting the investigation was wrapping up. And the wheels continued to turn... until earlier today when it was revealed that Steele and Hansmeier have both been indicted and arrested in connection with the Prenda scam.

You can read the indictment or Ken White's excellent analysis of it. As White notes, the indictment is incredibly thorough. We've written about a number of indictments in the past in which law enforcement is fairly lax on details. This is not one of those cases. The overview gives a really good summary of everything:

Between 2011 and 2014, defendants Paul R. HANSMEIER and John L.
STEELE orchestrated an elaborate scheme to fraudulently obtain millions of dollars in
copyright lawsuit settlements by deceiving state and federal courts throughout the country.
In order to carry out the scheme, the defendants used sham entities to obtain copyrights to
pornographic movies--some of which they filmed themselves--and then uploaded those
movies to file-sharing websites in order to lure people to download the movies. To learn
the identities of the people caught in the trap they constructed, HANSMEIER and STEELE
filed specious copyright infringement lawsuits and fraudulently procured permission from
courts to send subpoenas to internet service providers for subscriber information associated
with the IP addresses used to download their pornographic movies. After receiving this
information, the defendants--through extortionate letters and phone calls--threatened the
subscribers with enormous financial penalties and public embarrassment unless the
subscribers agreed to pay a settlement, all the while concealing their collusion in the alleged
copyright infringement. When courts restricted their ability to sue multiple individuals in
the same lawsuit, the defendants shifted tactics. They filed lawsuits falsely alleging that
computer systems purportedly belonging to their sham clients had been infiltrated by
hackers, and then recruited ruse defendants against whom they brought these illusory
"hacking" lawsuits. Finally, when courts became suspicious of the defendants' tactics
and motives, the defendants began a long process of lies and deceit designed to conceal the
truth and deflect responsibility from themselves. In total, the defendants obtained
approximately. $6,000,000 made possible by the fraudulent copyright lawsuits they peddled
to courts throughout the country

I believe the $6 million number is new. But everything else in there we've covered in the past. The lawsuit names some people by initials only -- but who are easily identifiable if you've been following the saga. M.L. is likely Mark Lutz the "paralegal" who was involved in many of these cases, and was a figurehead owner of some of the sham corporations. You may remember him from one of the earliest Prenda stories we had, where Lutz "appeared" in court as a "corporate representative" of one of Prenda's "clients" and yet knew nothing at all about the company he was supposed "representing." That story also involved an appearance by John Steele who claimed he was there just observing, but which the judge immediately became suspicious about.

P.H. is likely to be Peter Hansmeier, Paul's brother, whose name has appeared at times in connection with the Prenda scam and had been described as the technology person tracking down who was downloading the files in question. The indictment also mentions P.D. who is obviously Paul Duffy, the official owner of Prenda Law, but who was always sort of the third wheel of the operation before dying just as all the mess was unfolding. A.C. is clearly Alan Cooper, named here as "an acquaintance of Steele," but who was a caretaker for some Steele properties, and whose signature Steele forged on documents pretending to own AF Holdings, one of the bogus shell companies he set up. B.G. is almost certain Brett Gibbs, a California lawyer who filed a bunch of Prenda lawsuits early on, but was one of the first to reveal details once judges started to catch on.

Perhaps the most interesting part of the indictment is it details multiple lies that Team Prenda told under penalty of perjury or under oath to various courts. It's a pretty long and detailed list. It includes filings by Mark Lutz and Brett Gibbs, which the indictment claims were all done, under penalty of perjury, at the direction of Steele and Hansmeier -- so they don't even get off for trying to keep their names off these documents.

Based on all this, they're facing a bunch of charges, for mail fraud, wire fraud, conspiracy to commit money laundering (involving the transactions to hide money from courts) and conspiracy to commit and suborn perjury.

As White rightly reminds us, an indictment is just a bunch of allegations, not yet proven, but having followed Team Prenda and all these actions for many years, the feds seem to have clearly figured out what was going on, and appear to have the evidence to back up many of those claims. Things don't look good for Steele and Hansmeier. According to the Minneapolis Star Tribune, US Attorney Andrew Luger called a press conference to announce all of this and call out the actions of Steele and Hansmeier.

"The defendants in this case are charged with devising a scheme that casts doubt on the integrity of our profession," Luger said in prepared remarks. "The conduct of these defendants was outrageous — they used deceptive lawsuits and unsuspecting judges to extort millions from vulnerable defendants. Our courts are halls of justice where fairness and the rule of law triumph, and my office will use every available resource to stop corrupt lawyers from abusing our system of justice."

Turns out that when you abuse the judicial system to shake people down... people aren't going to be too happy about that. Of course, now we have to wonder if the other giant copyright troll, Malibu Media, may be facing similar issues going forward...

from the another-shoe-drops dept

Welp, it looks like another bad day for Team Prenda. The law firm that went around uploading its own porn films and then shaking down people on the internet has had a bad few years in terms of courts blasting them for abusing the court system and ordering them to pay up for all sorts of awful things. Every few weeks it seems like we read about another loss for John Steele and Paul Hansmeier (the third "partner" in this mess, Paul Duffy, passed away). The latest is not only a pretty big hit, it's also a complete "own goal" by Team Prenda. This one wasn't in one of their crappy shakedown lawsuits where a defendant hit back. No, this was in the case where Prenda tried to sue all of its critics for defamation in both Illinois and Florida. The Florida case, filed by John Steele, was quickly dismissed once Steele realized it broke all kinds of rules. But the Illinois cases moved forward. There was some bouncing around between state and federal court, before the case was dismissed and some sanctions were added.

There's been some back and forth since then, but after the defendants, Alan Cooper and Paul Godfread, filed an anti-SLAPP against Prenda, and asked for sanctions, the court has now said that Prenda needs to pay up big time. You may recall that Cooper was a guy that Steele had take care of his vacation home in Minnesota, but whose signature Steele then forged on copyright transfer documents. Godfread was Cooper's lawyer, who brought all this out. The lawsuit against them (and a bunch of John Does) was a complete joke from the beginning. And despite Duffy insisting it had nothing whatsoever to do with Cooper saying that Prenda had forged his signature, that's what it was obviously about. Anyway, like so many Prenda things, this one backfired in a big, big way. To the tune of $674,206.94.

There are the original sanctions of $11,758.20 we mentioned above. Then there are attorneys' costs and fees for $162,448.74. And, finally, for good measure, Judge John Darrah tacked on $500,000 in punitive damages. Of course, whether or not Cooper and Goodfread will actually get paid is an open question. Duffy, as you may recall, is dead. And the other major members of Team Prenda, John Steele and Paul Hansmeier have been hit left and right with other judgments. Hansmeier declared bankruptcy and recently lost his law license. Steele's facing disciplinary action in Illinois, last we checked, and of course, lots of people are still waiting for the FBI. So, it's unclear how much they'll actually collect, but it's another case where Team Prenda's own hubris backfired amazingly. As Paul Hansmeier liked to say, "welcome to the big leagues."

from the govern-yourself-accordingly dept

Well, one of the big Prenda cases may finally be over. As you may recall, the first truly scathing legal ruling against Team Prenda came a little over three years ago when Judge Otis Wright basically lit Team Prenda on fire. If you haven't read that whole decision in a while, it's still a thing of beauty. Here's just one paragraph:

Plaintiffs have demonstrated their willingness to deceive not just this Court, but other courts where they have appeared. Plaintiffs’ representations about their operations, relationships, and financial interests have varied from feigned ignorance to misstatements to outright lies. But this deception was calculated so that the Court would grant Plaintiffs’ early-discovery requests, thereby allowing Plaintiffs to identify defendants and exact settlement proceeds from them. With these granted requests, Plaintiffs borrow the authority of the Court to pressure settlement.

Since this was their first really major loss in court, Team Prenda still brashly insisted they would prevail on appeal, and that Judge Wright's ruling would not last. At the time Prenda mastermind John Steele even insisted that this was the only time that they had lost:

But very few people can argue that these [sanctions] are allowed, legally. The overwhelming majority of courts have found in our favor in hearings. The only cases that stand out are Judge Wright.

In the midst of all of this, Steele's big appeal of Wright's ruling, that he was so sure about, fell flat on its face back in June. For all of Steele's talk about how Wright was totally off base and there was no basis for sanctions, the 9th Circuit didn't buy it at all.

The district court did not abuse its discretion in ordering the Prenda Principals to post additional bond to cover Doe’s attorney’s fees on appeal. The district court had ample reason to do so. The Prenda Principals have engaged in abusive litigation, fraud on courts across the country, and willful violation of court orders. They have lied to other courts about their ability to pay sanctions.... They also failed to pay their own attorney’s fees in this case. Considering the Prenda Principals’ tactics throughout this case, it was not an abuse of discretion to increase the bond amount to cover the projected cost of attorney’s fees on appeal.

Given all that, the case went back down to Judge Wright and, finally, it appears that this case is really over. Earlier this week, Judge Wright basically closed out the case after Steele and Hansmeier* agreed to settle rather than try to fight on, with the insurance company that had originally secured the bond they needed to get to cover the possible sanctions, SureTec, agreeing to pay out the money. (*Well, not really Hansmeier -- since he filed bankruptcy, the bankruptcy trustee handled it for him instead).

Doe, Steele, and Hansmeier filed a stipulation and proposed order with the
Ninth Circuit seeking to settle all issues that were the subject of the appeal, the
relevant terms of which are as follows: (1) Doe shall be paid a total amount of
$132,393.75, which consists of the original $81,319.72 sanction, $278.73 in interest,
and $50,795.30 in costs and fees incurred on appeal; (2) Doe will move this Court for
summary adjudication of SureTec’s obligation on the bonds in the amount of
$132,393.75, which Steele and Hansmeier agree not to oppose; and (3) Doe, Steele,
and Hansmeier agree not to file any further motions, appeals, or petitions for writ of
certiorari on the issues adjudicated on appeal.

Judge Wright accepts the agreement and the case is basically, finally, over.

from the the-saga-continues dept

When last we left John Steele, one of the dynamic duo behind the massive copyright trolling scam once known as Prenda Law, he was being scolded by the 7th circuit appeals court (not the first appeals court to do so), for failing to abide by the court's own advice to "stop digging." But digging a deeper and deeper hole has always been in John Steele's nature, it seems. As we've mentioned in the past, Steele reminded me of a guy I once knew, who incorrectly believed that he was clearly smarter than everyone else, and thus believed (incorrectly) that he could talk and lie his way out of any situation if he just kept smiling and talking. That generally doesn't work too well in court -- especially when you're not actually that smart.

In that July ruling, the court upheld most of the money Steele and Paul Hansmeier were told to pay, and scolded them for directly lying about their ability to pay. It referred to Steele's "entire pattern of vexatious and obstructive conduct." However, as we noted, Steele kinda sorta "won" on one point, though even that win was a loss. One of the arguments that Steele's lawyer had made was that on the fine that the lower court gave him for contempt, the basis for that fine appeared to be under the standards for criminal contempt rather than civil contempt. Way back during oral arguments, the judges on the panel had asked Steele's lawyer, somewhat incredulously, if he was actually asking the court to push this over to be a criminal case rather than a civil one, and Steele's lawyer answered affirmatively.

And so, the court notes that the contempt fine "falls on the criminal side of the line," because "it was an unconditional fine that did not reflect actual costs caused by the attorneys’ conduct." So it tossed out the $65,263 fine, but noted that criminal contempt charges might still be filed (out of the frying pan, into the fire). Oh, and of course, it left open the idea that the lower court might go back and actually justify civil contempt fines. And it appears that's exactly what Judge David Herndon in the Southern District of Illinois has done. He's ordered Steele to show cause for why he should not be fined, and then details the basis for such a fine.

As a direct result of Steele’s misrepresentations, between January 29, 2014
and June 5, 2015, this Court expended a significant amount of time and effort
addressing matters relating to Steele’s ability to pay the Fee Order. This includes
the following: (1) reviewing, researching, and issuing orders resolving and/or
reconsidering numerous motions stemming from the misrepresentations; (2)
preparing for and holding hearings on February 13, 2014 (Doc. 123) and
November 12, 2014 (Doc. 187); and (3) reviewing asset statements submitted by
John Steele in support of his inability to pay claim.

Steele’s choice to make misrepresentations to this Court and to continue to
press the issue of inability to pay necessitated all of the above. Steele’s
misconduct resulted in an actual loss to this Court and, more importantly, to the
tax payers. It is the tax payers who ultimately bear the cost of adjudicating Steele’s
misrepresentations. See U.S. v. Dowell, 257 F.3d 694, 699-700 (7th Cir. 2001).
Considering the real cost to this Court and to the tax payers, the Court may
impose a sanction that compensates the taxpayers for the Court’s time....

The Court intends to impose a remedial sanction for the Steele’s
misconduct, outlined in this Court’s June 5, 2015 Order (Doc. 199). The remedial
sanction shall be a fine in an amount necessary to reimburse the Court for the
costs incurred as a result of Steele’s misrepresentations to this Court....

So, yes, the tiny "victory" for Steele in having the contempt fine tossed out was short lived, as a new civil contempt fine appears likely to be on the way. And, who knows, perhaps criminal charges as well. Can't wait to see Steele try to talk himself out of this one too.

from the first-rule-of-holes dept

When last we considered John Steele
and Paul Hansmeier’s challenges to contempt sanctions imposed
on them, we gave them some friendly advice: stop digging.... Apparently they did not realize that we
meant what we said. Hoping to avoid paying additional sanctions,
they dissembled to the district court and engaged in discovery
shenanigans.

And, yes, this is the latest in the still ongoing Prenda saga. Specifically, this is the appeal in the Lightspeed case, one of a few "main" cases where Team Prenda (John Steele, Paul Hansmeier and the late Paul Duffy) got completely slammed by courts for lying and other dishonest and sketchy behavior. Prenda lost big back in 2013, but kept lying. The judge then slapped them with huge fees. On appeal, the 7th Circuit smacked Prenda down again, and (as you probably surmised from above) explained the "rule of holes" to Prenda:

The first rule of holes, according to an old saying, is to stop digging. The two appeals before us bring that to mind, for reasons that will become apparent.

Because Steele and Hansmeier can't help themselves, they appealed again, leading to this latest ruling. Believe it or not, Steele actually may be temporarily happy with this latest ruling as he actually won on one point (but may lose even bigger in the long run). Still, the court is clearly not happy with either Steele or Hansmeier. It does note that since Hansmeier has filed for a (highly questionable) bankruptcy, he cannot pursue the appeal and thus his appeal is dismissed out of hand.

Steele's appeal, however moves forward. And he still mostly loses and the court doesn't miss opportunities to slam Steele:

Steele offers only the weak argument that Smith should
have obtained and submitted this evidence earlier, and that
Smith’s lack of diligence should cut off this line of inquiry....
This approach has little but chutzpah—a quality that Steele
and his compatriots have long demonstrated—going for it. To
begin with, it was Steele and Hansmeier’s actions that prevented
Smith from obtaining the necessary evidence in time
for the November 12, 2014 hearing. (Indeed, Steele and Hansmeier
maintained at the hearing that Smith should receive no
further discovery because he already had all the relevant documents
in his possession.) Steele’s misrepresentations and
Hansmeier’s motion to quash delayed Sabadell’s production
regarding Steele’s finances until November 17, 2014. The district
court denied Smith’s motion the next day. Meanwhile,
Smith first sought discovery regarding Monyet from TCF Bank on March 24, 2014. Because of Hansmeier’s second motion
to quash and initially incomplete production, Smith was
unable to obtain it until February 2015.

Steele nonetheless says that Smith should have found the
relevant documents earlier because Monyet’s existence was
“public record” in 2010, and the relevant documents were attached
as exhibits to a debtor’s exam in a Minnesota bankruptcy
case in June and July 2014. The fact that Monyet’s existence
was public record is of little import: Smith had no reason
to know of its existence, let alone any way to know of
Hansmeier’s control of the company or the transfers Hansmeier
made from its Scottrade account. Moreover, Smith was
not a party to the Minnesota bankruptcy case. The district
court did not abuse its discretion in granting Smith’s motion
to reconsider.

The court notes that the sanctions on Steele are "easy to justify" given "Steele's entire pattern of vexatious and obstructive conduct."

And that included deliberately seeking to hide his and Hansmeier's money just as the sanctions were being ordered:

This was the very time when Steele and Hansmeier were
emptying accounts they controlled of sums vastly in excess of
the sanctions they owed. This was obviously egregious behavior,
and a flat violation of the district court’s order. Their
actions necessitated Smith’s litigation over their ability to pay
the sanctions. Smith’s compensable expenses reasonably
reached back to his first round of third‐party subpoenas, issued
on January 16, 2014, as the district court found.

The one point that Steele won on, however, was on the contempt fine. Steele had argued that it was issued as a form of criminal contempt, rather than civil contempt, and there are different standards there. After looking it over, the appeals court appears to reluctantly agree.

Examining the nature of Steele’s fine and its justification,
we are convinced that it falls on the criminal side of the line.
It was an unconditional fine that did not reflect actual costs
caused by the attorneys’ conduct. The district court justified
the fine of $65,263.00 solely by reference to the attorneys’
“contemptuous statements in court.” This number, the court
commented, was “twenty‐five percent of Judge Murphy’s
original sanction.” It added that a “pattern is purposefully developing
whereby the contemnors could find their way back
to the full sanction … for their original wrongdoing if they
continue their misdeeds before this Court.” This justification
most naturally supports a fine meant to vindicate the authority
of the court and deter future misconduct, not an award designed
to be compensatory or coercive.

It is also telling that the amount of the fine was not connected
to any cost imposed on either Smith or the district
court. The court meant instead to punish past behavior and to
deter future contemptuous conduct. Nor was the fine tied to
any specific future action. While Lightspeed I found a fine
quantified without reference to billing statements to be a civil
contempt, the fine there “corresponded to attorneys’ fees and
costs incurred by defendants during the course of litigating
the contempt motion.” ... That is not the case
here: the district court said nothing about Smith’s costs. It had
taken care of the costs attributable to the separate discovery
sanctions in a separate part of its order.

Of course, this small victory may be short-lived:

We
make no comment on what type of contempt Smith may wish
to seek, whether the court might re‐consider the possibility of
civil contempt, or whether criminal contempt could be justified
once the proper procedures are followed. We are confident
that the district court will take a fresh look at these questions
in light of this opinion.

This issue actually came up during the original appeal, when the judges on the 7th Circuit, somewhat incredulously, asked the lawyer representing Steele and Hansmeier if he was really asking for the courts to consider if Steele and Hansmeier had committed criminal acts when it had already focused solely on civil ones. And, now, Steele, at least may find himself in a deeper hole because of this. That's what happens when you keep digging.

from the many-shoes-dropping dept

The shoes keep dropping for Team Prenda (now basically down to just Paul Hansmeier and John Steele). As it appears that the FBI is getting close to bringing a criminal action against the two, it's big appeal in the 9th Circuit has fallen flat on its face. This was the appeal of Judge Otis Wright's blistering opinion, slamming Team Prenda for all sorts of dishonest and sketchy actions, passing on their info to law enforcement (possibly kicking off the FBI investigation) and issuing $81,319.72 in legal fees and sanctions for the games they played with the court, involving copyright trolling, lying about who actually ran the "company" that was suing (Ingenuity 13) and otherwise general lying to the court.

Steele had insisted that they would win on appeal and that Judge Wright was impossibly biased against them, but when the case was heard over a year ago, it appeared to go very badly for Team Prenda. And that's confirmed today with this short and sweet ruling by the appeals court upholding Judge Wright's original ruling. The crux: all of the evidence basically showed that Wright was absolutely correct that Hansmeier and Steele (and Paul Duffy, who has since passed away) were up to no good:

Based on the myriad of information before it—including depositions and
court documents from other cases around the country where the Prenda Principals
were found contradicting themselves, evading questioning, and possibly
committing identity theft and fraud on the courts—it was not an abuse of discretion
for Judge Wright to find that Steele, Hansmeier, and Duffy were principals and the
parties actually responsible for the abusive litigation. Similarly, it was not an
abuse of discretion for Judge Wright to find that the Prenda Principals were indeed
the leaders and decision-makers behind Prenda Law’s national trolling scheme.

Also this:

The district court did not abuse its discretion in ordering the Prenda
Principals to post additional bond to cover Doe’s attorney’s fees on appeal. The
district court had ample reason to do so. The Prenda Principals have engaged in
abusive litigation, fraud on courts across the country, and willful violation of court
orders. They have lied to other courts about their ability to pay sanctions.... They also failed to pay their own attorney’s
fees in this case. Considering the Prenda Principals’ tactics throughout this case, it
was not an abuse of discretion to increase the bond amount to cover the projected
cost of attorney’s fees on appeal.

So, yeah, the grand appeal here has fallen completely flat. This is the second appeals court to do so, as the 7th Circuit did it a couple years ago too. At this point, it's difficult to see how either Hansmeier or Steele will keep their law licenses (though both have been filing ADA trolling cases in the meantime), and depending on how the FBI case goes, things may get even worse for them.